Question

3. Consider a monopolist who serves a market in which the demand curve is given by Q = 30−P. The firm has a fixed cost of F and a constant marginal cost MC= 10.

(a) Find the profit-maximizing output and price for this monopolist.

(b) Find the necessary and sufficient condition for this monopolist to be profitable.

(c) What (how much) is the deadweight loss due to monopoly in this market?

(d) Now suppose the monopolist serves another market in which the demand curve is

given by Q= 40−2P.

i. If the monopolist can charge a different price in this market (i.e., price discrimination), what price should the profit-maximizing firm charge?

ii. If the firm is required to charge the same price in the two markets (i.e., no price discrimination), what price should it charge to maximize its profits?

(e) Return now to the single market example. The monopolist is considering multiple production locations. It can remain with its current production cost (MC= 10) or switch all or part of its production to a plant with MC= 2Q. How much, if any, of its product should it switch to the new plant? Does its total production change?

Answer 1

Ans

Can answer only 4 parts according to Chegg policy